Coal Stocks Take A Breather As Trading Sentiment Sours In Commodities Markets: Was The Election In India A Factor?

Coal stocks have pulled back amid speculation about future leadership in India, a major importer, but the sell-off may have more to do with short-term trading sentiment rather than a shift in market fundamentals.

The Range Global Coal Index ETF COAL fell 3.8% Tuesday as early results in India showed Prime Minister Narendra Modi's party secured a third consecutive term but didn't win enough seats for an outright majority.

That appears to have led to some speculation that his government might face resistance to plans to add at least 55-60 gigawatts of coal-fired electricity generation by 2031-2032.

"Some are saying that Modi's party not achieving the threshold to govern without coalitions is the reason for the sell-off, but frankly I think that's speculative," said Matthew Warder, CEO of energy-, metals- and mining-focused consultancy and analytics firm Seawolf Research.

"A few stocks actually just hit 52-week highs yesterday and the whole sector was overbought," he said. "So I think it's probably more likely that a quick correction was in order anyway."

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John Berman, CEO of natural resources investment management firm Berman Capital Group, agreed, saying the pullback in coal equities is largely in sympathy with the rest of the natural resources market trajectory over the past week.

"I think the Indian election narrative is largely wrong," he told Benzinga. "I do not think that the Indian election results will have any substantial impact on the long-term demand growth India will have for thermal coal-fired power generation.

"The price action in coal equities over the last couple of days looks like panic selling to me," he said. "I don't think there is a significant fundamental cause."

Weakness in energy stocks related to an OPEC meeting may have helped spark a pullback in base and precious metals futures, with mining equities moving in sympathy with the speculative money outflows, Berman said.

Warder expects coal equities will resume a broad uptrend they've been in since early this year.

International coal prices have been rising amid tightening supply exacerbated by a March bridge collapse that closed the Port of Baltimore, a key U.S. coal export hub, he said. 

The collapse cut off shipments from Consol Energy Inc CEIX, the biggest U.S. thermal coal exporter. The company was able to resume shipments last month but said cargos were limited by ship size and constrained departure times.

"The ability to ship product from the Baltimore terminal is critical as we continue our shift to export markets," Consol CEO Jimmy Brock said in a statement.

India is one of the world's biggest importers of thermal coal used to generate electricity. Exports to the country and other emerging markets have been a lifeline to coal mining companies in developed markets where coal-fired generation is being phased out. 

In recent years, India has been the top recipient of thermal coal shipped through the Port of Baltimore, according to the U.S. Energy Information Administration. Much of that is used to generate electricity to power the brickmaking industry.

Meanwhile, electricity demand from air conditioners has prompted increased Indian coal imports this year as the nation faces hotter-than-normal temperatures. As of February, nearly 80% of the nation's electricity was generated by coal, according to Indian government figures.

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Photo: Dominik Vanyi via Unsplash